Good day ladies and gentlemen, welcome to the Park City Group Fiscal Fourth Quarter and Full Year 2018 Earnings Call. Today's program is being recorded. At this time, I would like to hand the conference over to Mr. Rob Fink, Hayden Investor Relations. Please go ahead sir.

Thank you, operator and good afternoon everyone. Thank you for joining us today. Hosting the call are Mr. Randy Field, Park City Group, CEO and Chairman; and Todd Mitchell, Park City Group, CFO. Before we begin, I would like to remind everyone that this call could contain forward-looking statements about Park City Group within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not subject to historical facts. Such forward-looking statements are based on current beliefs and expectations. Park City Group management and are subject to risks and uncertainties which could cause actual results to differ from forward-looking statements. Such risks are fully discussed in the company's filings with the Securities and Exchange Commission. The information set forth herein should be considered in light of such risk. Park City Group does not assume any obligation to update information contained in this conference call. Shortly after the market closed today, the company issued a press release over viewing the financial result that it will discuss on today's call. Investors can visit the Investor Relations section of the company's Web site at parkcitygroup.com to access this news release. In addition, in our earnings release and on this call, we may refer to GAAP and non-GAAP financial results including free cash flow, EBITDA, adjusted EBITDA and adjusted earnings per share which are non-GAAP term. We believe these non-GAAP terms are useful measures for the company primarily because of the significant non-cash charges in its operating statement. Reconciliations of GAAP and non-GAAP results are in the earnings release and on the Investor Relations Web site. With all that said, I'd now like to turn the call over to Todd. Todd, the call is yours.

Thank you, Rob. Good afternoon everybody. Fiscal 2018 was the year that we brought everything together. In the latter half of last year, fiscal 2017, we begin to make strategic investments to bring new products and new services to market to round out our offering. In fiscal 2018, our revenue trends grew progressively stronger and our growth in expenses steadily declined as we benefited from these initiatives. And as a result, our fiscal fourth quarter was a strong in to a solid year across the board. That being said, the year was clearly headlined by the successful launch of Marketplace. This is an entirely new offering that seamlessly leverages our converged ReposiTrak platform benefiting from both our supply chain and compliance solutions. With marketplace, we can now help our customers with every aspect of their workflow across the supply chain making us the only end-to-end supply chain business that can help a retailer source that and transact with their suppliers. And we're seeing the positive results of our efforts. We are deepening our relationships with the suppliers on our network. Marketplaces is changing the dynamic of our relationship with these suppliers. We're no longer just a mandated service in their eyes. We're a partner in helping them to grow their business. Our Tier 2 supplier hub growth initiative is also deepening our compliance relationships with these suppliers. We're no longer just the way that they show their customers their compliance. We're a partner in helping them make sure their own suppliers are compliant and in helping them complete the myriad of activities they need to become compliance themselves. We're also deepening our relationships with retailers and wholesalers. Marketplace is a solution to yet another challenge they face helping them source new products faster and more efficiently from suppliers they know…

Thank you, Tom. Thank you everybody. My remarks today will be as scripted as the last few of them. But don't worry there's plenty of time to ask questions at the end. So obviously, we've just finished a milestone year for the company and frankly 2019 is poised to be an even more important year overall for our customers and frankly for our shareholders. As we've noted before, our customers responding to multiple challenges in this environment in food retailing. And this is creating some amazing opportunities for us. So I'm going to discuss several of these trends which are impacting our customer set and our prospect set. First, most importantly perhaps our changing expectations from consumers and it would appear that consumers don't just want more varied product choices. They want organic, GMO, non-GMO, more locally sourced et cetera. And that therefore is driving a high degree of product diversification pressure on retailers. Consumers are also simultaneously demanding more in stock from this diverse and for the retailer more complex product set. So in other words, consumers are making the job of retailers a harder job. They have to stock more items, more diversified; more locally sourced and keep them all in stock, tremendously difficult problem. Secondly, retailers have to deal with what we perceive that I think now the world perceives as increasing risk and regulation in their supply chain. Interestingly, it's the consumer expectation that is driving that risk meaning as you diversify your product set as a retailer to more and more suppliers who are typically smaller and smaller, the risk around food safety et cetera is going up. So strangely enough, consumers wanting localization and product diversification are pushing retailers into a more and more risky position with regard to their supply chain. It's inherently…

[Operator Instructions] Our first is Ananda Baruah, Loop Capital.

Hey guys. Good afternoon. Thanks for taking the question and congrats on the solid quarter all around. I guess I have a few here if I could. You guys did a good job or you did like really helpful job of kind of walking through, it [differ] [ph] like in the stool and where you are right now with them and the interplay between them. Could you drill down a little bit and just give us a sense of blocking and tackling perspective, what you'll be focused on through the fall into '19, this is the first time you've had -- let's say you have got higher level all three businesses, all three services up and going at the same time. So how do you guys plan on mining this three together now, that would be helpful and I have a couple of follow-ups. Thanks.

So I think it's fair to say, by the way, I think you should offer a prize for the first person that pronounces your name correctly. Sorry. I think the reality is that we're going to be focused to a great extent on what we call the Tier-2 hub initiative. It's a learning for us. We're going to have to get skilled at it. It requires a different approach than we've taken before. So we're experimenting and pretty soon we'll have a business process if you will because by nature process driven. While I have a process that produces the result that business over the next several years is very important to scale. So first we have to learn how to do it and the consequence will be people scale it. So Tier-2, if we will is critically important initiative. Secondly, in fact it's a lot of my time honestly. Secondly focusing continually on Marketplace, it's obviously going well. We're so pleased that the execution has just been great. There's still significant learnings in the back office part of Marketplace that we want to get better tuned. But I would say if you put those two initiatives to the top that's a big piece of the focus inside the process.

Got it. And Randy, you made mention of the Tier-2 was going to be a strong focus of your time as well. In what way, I guess in what ways what will it require your time and attention?

Well, we're moving from a service centric organization -- let me give you -- I'm going to put a number out there I'm not highly confident that it's correct that I think it's pretty close. What if I want to say that our churn rate last year meaning our loss of customers was Todd, 2%?

Right around 2% in the compliance business.

It is just crazy. I mean we're really, really good at doing this. So the business reality for us is that we've gone -- we're going to have to move from a service centric organization to a more sales centric organization with that group of people. Now that takes some training and management and process that is coming along. So it takes time -- everything in this business takes time and focus if you care about execution. If all you care about is marketing and sales, it's actually pretty easy. But if you care about the customer experience, you better pay attention to the execution or you will pretty soon screw it up and lose your market reputation. So huge percentage of our time is internal on how we're executing with our existing customers and that activity will take a lot really well, but I'm getting side by side. Yes, last week has been pretty remarkable.

Got it. That's helpful. And then, just last one for me for now, I can see before I get back in the queue. I mean you guys did a great job on the margins this quarter. How would you like us to think about, you mentioned on this call and then also on recent calls about upon getting the business to stood up like we are now, the potential to see pretty attractive incremental margins as they ran. So given that you've just put up a really nice and really solid margin in this quarter. How would you like to think about that for fiscal '19? Any, I guess any context would probably be helpful for us? Thanks.

I think we expect to see pretty significant increase in net income in fiscal '19. Certainly debt net income will grow much, much faster than revenue and we expect good revenue trends. In terms of the revenue mix, I think as we've talked before that's what's going to drive kind of the margin mix. Marketplace is as we said dilutive to gross margin, but accretive to net income. So, ultimately it will determine what our operating margin looks like, but the scale in which the revenues are growing their did and it is profitable means that it will be -- it will contribute to our net income.

That's the way to put it. It's running ahead of our expectations in terms of its contribution at the margin level to the business a fair statement.

To both the revenue and margin.

So, we're pleasantly surprised, which means we're going to double down on our management of it to make sure that we've got it right. And at this point, it's almost self scaling. We've got a lot of interest from other people about how can they participate. So we know that when we get aggressive about bringing people into it that we should be able to -- there will be a sales cycle, but we can bring people into it, but it's doing better than we thought it would. It will never have the same margins as the rest of the business, but it'll have a very nice margins and contribute significantly to dollar profitability in the enterprise.

So I think whatever percentage of it makes it, will ultimately determine our margins for the year. The rest of the business is largely going to piggy back off of investment that we made last year. I think that that the poor OpEx excluding Marketplace is, I'm not going to say flat, but certainly will increase well below the growth in those businesses.

Got it. Thanks. It's helpful context. Thanks guys.

Our next question is from Tom Forte, DA Davidson.

Great. Thanks for taking my question. I have two questions. One, can you walk through the fixed versus variable nature of your revenue for your three lines of business? And then, number two, you've talked in the past about international expansion and potentially looking for a partner. Can you update us on your thoughts on international expansion as well? Thanks.

I'll take the first question. So across our 3 application suites, compliance and supply chain are fundamentally subscription businesses with recurring revenue streams. That's not to say that they are 100% recurring revenue, but a large percentage of that revenue is reoccurring, it's growth that increases -- the faster they grow, there's a certain amount we charge to bring customers online and that's basically the only non-reoccurring component. Marketplace is transactional. And so I won't call it reoccurring, but what we've seen is that the way that we're scaling this business is not to let it scale randomly, but instead to bring on a customer with a specific need, and then suppliers that have products to satisfy that need. And so that mitigate some of the randomness to the transactional nature of that business because they're essentially buying for what we would call events whether that event be a six month event or a weekend long event, but that business is entirely transactional from a contractual perspective.

And the answer to the second part of your question Tom, we've already established and announced a partner in the United Kingdom and I'm envious of their prospect list. It's almost a who's who of U.K. and continental Europe retailers. So we're starting to work through the list making calls and our fingers are crossed and we're in search for partners in several other places in the world. And as we have transactional stuff to report we certainly will. So we're pretty excited about that.

Great. Thanks for taking my question.

[Operator Instructions] Up next is Walter Schenker, MAZ Partner.

Hi, Randy.

Hi, Walter.

Three questions, two are very short, then one is more interesting. One, why would you have increased the line of credit debt with the cash we have would seem -- as a negative arbitrage there. Question 2 is, is the large new compliance contract or a retailer or a supplier. And then, the interesting question at least from my standpoint is you announced a large new 14,000 retailer supplier, how does one get retailers as a supplier. How do you force them to use this? I understand how a retailer can force it down? How does the supplier force it up?

Yes. Interesting. Are you okay Walter, if I answer them in reverse order?

Your company.

Yes. Okay. We are finding some large suppliers realizing that scan-based trading where they own the inventory, they manage the inventory, they stock the store, they destock the store, several large suppliers are coming to a very interesting conclusion that scan-based trading in that circumstance is not a punishment, it's an advantage. So think of it this way, suppose you are a -- I'm making this up. Suppose you're delivering, let's call it bread. Okay. So you're a bread supplier and you have two retail stores, a mile apart. One of the stores has 500 loaves of wheat bread that you put in. It is getting toward the end of the week and you absolutely know they're not going to sell more than 100 loaves. Well, let me tell you the problem. You're about to literally eat it. So if you own the inventory, instead of the retail store owns the inventory, guess what you can do? Take it, out move it and put it in the other store that needs the inventory. So in other words, if you're a supplier owning the inventory is not painful, it's an advantage, it's yours, pick it up and move it. You don't have to check it into the back of the store, it saves you labor, gasoline and time. So you literally become more efficient in your route business simultaneously with having greater control. So we think over time a number of suppliers will recognize this is a great strategy and it's pretty easy to go to the retailer and say oh by the way, you don't have to pay for my inventory until you sell it, it's your unconsignment. So tell me what retailer would say no to that idea, exactly none. They all love the idea. So it's a big thing. You'll see is constantly increasing our lines of credit. But you'll actually see the amount of debt outstanding at the end of a quarter typically remaining about the same. So that's kind of not anything important. And the other question was…

Wholesaler or retailer?

Oh, yes. The one of the big accounts that we've signed some big retailers and recently also some wholesalers. So I don't want to be any more specific. I'm being evasive. Can you tell Walter? I don't want to talk more about it. But there will be, yes. But there's more to that story than we've said so far but more of that information will come out in the next few months.

And lastly to allow you to be most evasive, double digit sales ranges from 10% to 99%?

It will be somewhat less than 99%. I'm confident, it will be less than 99%. I'm actually equally confident it will be more than 10%.

Okay. Thanks a lot Randy.

Let me answer that. I'm confident that it will be at a level which you can still consider us a growth company.

For sure.

Okay. Thank you.

And Walter, because I know you are one of those guys that is sort of like bottom-line. It's really important that is a company for our customers and frankly for shareholders that we focus on the growth at the bottom-line. You will like that.

Okay. Thank you, Randy.

Thank you, guys.

And ladies and gentlemen at this time there are no further questions. And that also does conclude our conference for today. Thank you all for your participation. You may now disconnect.